Why Balance Sheets Matter
As the year ends, it’s important to reflect on the year behind you, but also make sure all your financials are in line so you can be set up for success in the new year. Although finances and record keeping may not be the most exciting part of farming, they are key pieces you need for a successful loan approval. The biggest question you may have when it comes to financials is simply, where do I start?
The answer begins with a balance sheet. A balance sheet is arguably one of the most important financial documents. Joel Althauser, AgCredit Credit Analyst, says that balance sheets are “a document where you are recording what you own and what you owe. The most important part of it is that it is a snapshot in time. It’s a photograph of the financial health of your operation at that given time.” When you meet with your lender at the end of the year, they will ask for your balance sheet. Your lender will review the document to better understand your operation’s financial situation when exploring a new loan opportunity.
A balance sheet can be broken down into two parts; assets and liabilities.
Assets are what you own, and liabilities are what you owe. Assets can be in the form of cash, bank accounts, real estate, equipment, vehicles, or retirement accounts. Liabilities can be loans from financial institutions, and/or individuals or accounts that you have made payable to co-ops.
Not only does your balance sheet help your lender understand your operation, but it is a guidepost for making decisions about your operation in the present and future. Balance sheets are a key point for your operation and your lender because they evaluate a business’s capital structure and determining how profitable it is relative to its expenses.
Our team at AgCredit is always available to answer any questions regarding financials, end of the year balance sheets, or anything in between. Give us a call at your convenience and we will work with you to help you get ready for the new year.
Check out our free balance sheet resource here to learn more.